Sharp slowdown of wage growth

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 1.9% YoY in April vs. 6.3% in March, running clearly below our forecast (5.0%) and the market consensus (4.5%). Thus, the annual wage dynamics have reached the lowest level since June 2013. In real terms, corporate wages, adjusted for the changes in prices, decreased by 1.4% YoY in April (the first decrease in real wages since January 2013) vs. a 1.6% increase in March. The sharp slowdown of wage growth in April was due to the outbreak of the COVID-19 epidemic and the resulting significant increase of uncertainty about the demand outlook. The April data indicate that the measures taken by companies to reduce the cost of labour (revision of plans concerning pay rises and reduction of their nominal level) are faster and deeper than we expected. We believe that the surprisingly low wage dynamics may also result from incorrect reporting by enterprises. These wages should be reported in terms of full time jobs but it is quite probable that in the case of reduced working time some companies are reporting proportional decrease in wages.

How big was the impact of care benefits on employment?

According to GUS data, employment in the sector of enterprises decreased by 2.1% YoY in April (the first annual decline since October 2013 and the deepest decline since November 2009) vs. a 0.3% increase in March. In MoM terms, employment decreased by 152.9k. It has been the biggest monthly employment decline in the history of available data. The very sharp decrease of employment in April resulted from the outbreak of the COVID-19 epidemic. In our view, the main reason explaining such large scale of decrease in the companies-reported employment was the fact that many employees have claimed child care benefits (the effect of closed schools, educational entities, and nursing homes). In accordance with the information presented on 30 April by the Minister for Family, Labour and Social Policy, the number of child care benefit claims amounted to 580k. According to GUS guidelines, persons obtaining this benefit should not be included in the number of employees reported by enterprises. In addition, the employment freezing tools implemented by enterprises under the “anti-crisis shield” have also contributed to the slump in employment in April. Due to the GUS-required method of calculating average employment in companies (in terms of full-time jobs), the reduction of working time in many companies was conducive to decreasing the employment reported by companies.

The risk of slower rebound in consumption is growing

The sharp decrease in employment in April is therefore largely temporary and as such it is not relevant for assessing the current trends in the labour market. In particular, due to the factors distorting employment data, the wage fund dynamics (employment times average wage) are also seriously affected and their usefulness for assessing the outlook for consumption is currently very low. We maintain the view that as the number of employees claiming child care benefits decreases, persons who stopped receiving these benefits will in the coming weeks be included again in the number of those employed in the corporate sector. In addition, for the above-mentioned reasons, the decrease in employment by 152.9k will be faintly reflected by the April data on unemployment. Today’s data on the labour market are thus in line with our optimistic scenario, in which the rate of registered unemployment in 2020 will peak in Q3 at a level of 8.6% and will gradually decrease in subsequent quarters. However, the data on salaries in April signal that the recovery of consumer demand expected from Q3 will be slower than we anticipated (see MACROmap of 18/5/2020).

Today’s data on salaries and employment in the enterprise sector are slightly negative for PLN and bond yields, we believe.

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